Trended Data Tracks Borrowing Behavior Over Time
Trended Data Credit Scores
Credit scores are based on a snapshot of the data contained in your credit file at a given point in time. If you habitually carry a high balance close to the credit limit you can pay it off just before the statement closes for the month. The report submitted by the lender to the credit reporting agencies every month is the amount on the latest statement. Now the credit reporting agency will show a zero balance for that card. This will result in the highest score possible for that card in that very important component of your credit scoring known as debt to available credit ratio.
You can be habitually in heavy credit card debt but create an artificially high score. Trended data credit scores are designed to highlight and warn potential lenders about consumers who regularly do this. Do a heavy pay down just prior to the date on which the statement closes just before you apply for a loan. This tactic may be fine for some credit requests but beware of lenders who look deeper.
Lenders have always been aware of this weakness in the system . Their own internal systems track your payment history. They can use this valuable information to make informed decisions on granting or withholding applications for an increase in their own credit limits. Now more lenders are looking outside their own internal data on borrowers. They want information on the borrower’s behavior over lengthy periods of time in paying other obligations. This is known in the trade as “Trended Data.”
Do Trended Data Credit Scores show Credit Card Debt Creeping Up or Trending Down?
Equifax’s Dimensions plan gives its clients 24 months of trended data credit scores. TransUnion‘s Credit Vision will give trended data for 30 months. Lenders will now be able to see with trended data credit scores if there have been major changes in payment behavior just ahead of big purchases. Big purchases means mortgage, car, boat, trailer, loans, large installment loans and the like.
Lenders will give greater weight to the most recent months. Recency is always considered very predictive of likely future behavior. A borrower may have resolved his problems of a year ago and be a perfectly acceptable risk at this time. Alternatively a good paying borrower may have lost his job, contracted a major illness or be going through punishing divorce proceedings. No one is immune from a sudden change of financial circumstances.
Trended Data Will have 5 Fields
Lenders using trended data credit scores are basically interested in 5 data points:
- Balance Amount
- Original loan/limit
- Scheduled payment amount
- Actual payment amount
- Last payment date.
As always, paying more than the minimum each month ahead of time is regarded as the holy grail of good borrowers. Even a few dollars more than the minimum sends a reassuring message. Of course the more the better since interest is computed based on the average daily balance. This assures the lender that there is no sign of payment stress.
Lenders are much more interested in where borrowers are going than in where they have been. Past is prelude to future. That is why trended data is here to stay.
Fannie Mae underwriters have required trended data credit scores since 2016.